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OCR tipped to stay at 2.5 percent

Monday 03 Dec 2012 7:45a.m.

OCR tipped to stay at 2.5 percent

Reserve Bank governor Graeme Wheeler is likely to keep the official cash rate (OCR) unchanged at a record low this week because there's little sign that renewed life in the housing market and Christchurch's rebuild is stoking inflation.

Mr Wheeler will leave the OCR unchanged at 2.5 percent on Thursday, according to all 12 economists in a Reuters survey.

The general consensus among them is for him to begin hiking rates in the third quarter of 2013.

Some economists say he has room to cut rates in his first monetary policy statement since taking the bank's helm. Recent figures have shown an unexpected decline in third-quarter retail sales, the unemployment rate has reached a 13-year high of 7.3 percent and inflation has slowed to a 0.8 percent pace - below the central bank's target band.

Yet traders are betting on just an 18 percent chance of a cut this week.

"An environment of weak near-term inflation would ordinarily prompt serious consideration of an OCR cut," said Nick Tuffley, chief economist at ASB, in his preview of this Thursday's monetary policy statement

But the rebuild of Christchurch and "increasingly heated state of parts of the housing market" suggests that "the medium-term outlook for inflation is not nearly as benign as the current headline rates".

Mr Wheeler may be in no rush to move on interest rates with the New Zealand dollar staying stubbornly high and above the Reserve Bank's forecast track on a trade-weighted basis.

He will also be concluding his review with no clear sign that the US Congress will find a way to avoid the fiscal cliff that would start on January 1, stalling the world's biggest economy and ongoing woes in the euro region.

NZN

 
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